Saturday, December 19, 2015

What to Expect from the Indian Stock Markets for the Year 2016

With barely 2 weeks left until the New Year 2016 dawns on us, everyone is busy making New Years Resolutions. The investor community is abuzz with chatter about what the new year is going to bring for us from the Indian Stock Markets. The year 2015 was exciting, we started with a lot of Euphoria about a Bull on the verge of breaking lose and then we had a major halt in momentum and it looks like the bull is off its shackles and is starting to gather pace.

This article is my attempt to predict what the year 2016 might have in store for us from a Stock Market perspective…

Disclaimer Before Starting: The Stock Markets move in a mysterious way and in its long history, Nobody has been able to accurately predict it. People are right sometimes but are wrong most of the times. This article is a best effort attempt to reasonably predict what to expect but there is no guarantee. I would be lying if I said, this is what will happen. That’s why I used the words “Might”…

The Year that was – 2015

The year 2015 started off really strong. The new BJP Government headed by Mr. Modi had just taken charge and the Stock Markets were reeling under a Ton of momentum on the Bull side. 2014 was a Phenomenal year where the BSE Sensex started at around 21200 in Jan and ended at around 27500 by the end of the year – A rise over 6000 points or a 28% growth.

Coming of this phenomenal run, we started 2015 when the BSE Sensex was around 27500 and right now the Sensex is actually hovering around 26000 – a fall of around 1500 points or a 5% decline. If we further analyse the data for the year 2015, the year has been more of a See-Saw than anything. See the picture below:

We saw a slight correction in March & April where the Index erased the gains it had posted until Feb. Then there was an incredible bull run of about 2000 points in May and then a slight correction in July-August wherein the Index lost some ground. Then we had another bull run of about 2000 points in September-October and then the market has been Steadily declining ever since. The index has lost almost 4000 points since the start of November and we are presently trailing the start of 2015 by about 1500 points.

What is In Store for Us in 2016?

I think 2016 will most likely be a good year for the stock market. Am expecting the Stock Market to perform strong this coming year. Numbers wise – we can expect the Sensex to inch closer toward the 30,000 mark and the Nifty the 9000 mark. Based on the present Index values that would represent a growth of about 15-20% in One Year.

What is the Basis of this Opinion?

There are many reasons why I feel that the year 2016 will overall be bullish for Investors. They are:

1. India – A Preferred Emerging Market Choice for Investment

Have you heard of the MSCI Emerging Markets Index? This is an Index that comprises of many emerging market nations like India, China, Brazil, South Africa, Russia etc. India has a weightage of about 8% on the overall index and the MSCI Index is a consolidated/weighted average of the indices of all these countries. If we compare the MSCI EM Index, the indices of the major nations that comprise this index and our BSE Sensex, one thing is very clear.

Over the past two years, these indices have either stayed more or less flat or have lost a ton of ground. But, Sensex has gone up significantly. If you recollect the index figure from the start of 2014, sensex was trading at around 21200 and we are presently closer to 26000 which is an almost 22% growth in 2 years.

This is proof enough that India is still one among the most promising Emerging Market Nations in the world. With the steps taken by the Government to increase industrial productivity, power generation, improve infrastructure, collaboration with foreign nations and attracting Investments etc., this trend is expected to continue.

2. Strong Domestic Interest in the Stock Market

There was once a time when Foreign Investors could literally make or break the Indian Market. Flashback to the economic crisis about 6-7 years back. Companies with fantastic track record, profitability and prospects for strong growth were losing value in the market rapidly. Foreign investors from the US and Europe were liquidating assets in India to recoup their losses and as a result our market took a deadly toll. The BSE Sensex was trading at around the 8000 mark.

However, the situation now is markedly different. Yes, if today foreign investors decide to pull out drastically, our markets will lose value but not as badly as it did in 2008-09. We may expect a correction of about 10-15% at most if such an event happens.

You may be wondering why – right?

That’s because, the domestic investors are really investing into our markets. Over the past 6 months, even though FII Investors have liquidated a ton of their assets, our domestic investors (especially mutual funds) have seized the buying opportunity which has cushioned the blow. Yes, the index has gone down but not as badly as it could’ve been if our domestic investors hadn’t stepped in.

This trend is expected to continue with Indian investors buying more into our markets. Couple that with strong foreign investment interest, don’t you think the outlook for 2016 is positive already?

3. Strong Performance by Good Companies

Though the BSE Sensex is indicative of the overall stock market situation of India, it is a 
collective/weighted average of about 30 companies. If we review the performance of these 30 companies individually, we can see that, 11 of them actually made gains in the last one year and 7 of them made double digit gains ranging from 13% to 42%. Of course, as the broader index went, 14 of the 30 companies made double digit losses ranging from 13% to 55%.

If you investigate further, even though the broader market lost value, companies that were posting strong profits in their quarterly financials and stayed out of the news for the wrong reasons, their stocks did well.

Coming to the interesting part. Though the BSE Sensex lost almost 1500 points, the BSE Midcap Index actually has gained over a 1000 points in the last year with numerous midcaps offering fantastic returns to Investors. Similarly the BSE Smallcap Index has also gained about 800 points in the last year with numerous smallcaps offering good returns to Investors.

The point here is, this strong performance by good companies is expected to continue in 2016 and will help fuel the market upswing.

4. Market Correction Presents Good Buying Opportunities
Many Companies with Strong Fundamentals especially Bluechips are presently trading at near their 
52 week lows. Long Term Investors usually wait for such good buying opportunities and start buying good stocks when they fall to attractive valuations. This coupled with the earlier 3 points is going to renew the interest in the stocks of good companies and propel the market higher.

Some Last Words

Long Term Investors do not fear the market corrections. In fact, they see corrections as opportunities to buy into companies with strong fundamentals. I feel the present correction has uncovered good buying opportunities. Investors with a long term investment horizon should start cherry picking company’s with strong fundamentals and start investing on a regular basis. Don’t buy in one big lump. Buy in small quantities but do it at a regular frequency – more like a Systematic Investment Plan. Set aside a certain amount each month that you are comfortable investing, shortlist good stocks and buy into them each month.

Happy New Year 2016 folks…

So, What Do You Think? Sound off in the comments section and do remember to share this article in social media so your friends could read it too…

Disclaimer: This article is purely based on the Authors assessment of the market situation and data gathered from the Internet. This article is not a recommendation to buy shares of any company. Stock Investments are always subject to Market Risks and you may lose all or part of your money. Please be careful while selecting stocks for Investment. The Author does not accept liability for losses arising out of stock buy/sell transactions done after reading this article. 

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